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Published: October 31, 2011

 
 

Demographics Are Not Destiny

Demographically, the U.S. is in better shape than Japan, although it is not without its own challenges. The U.S. dependency curve is at a historic low and its human development at a historic high. The question, however, is whether it can maintain its position in this demographic sweet spot. Although fertility rates in the U.S. are far lower than they were 50 years ago, they are higher than those of other advanced developed nations; this, coupled with the country’s relatively open immigration policy, will keep its population growing. But this growth brings with it the well-known integration challenges associated with the new arrivals, and an ongoing political debate about how open the borders should remain. Moreover, even with immigrants flowing in, the U.S. will still get grayer; the age-dependent population will climb from 13 percent in 2010–11 to 22 percent by 2050.

The U.S. must look beyond the short-term economic fixes of its recent past, such as increased dependence on consumption, and focus on pro-growth policies that increase productivity through innovation and R&D, encouraging private-sector efforts. It should also join Europe and Japan in rethinking the prevailing assumptions about aging and work. On the environmental front, policies should steer energy consumption into alternative and renewable energy sources and promote awareness of the benefits of sustainability.

Shaping the Future

Government and business leaders need to set out now to improve the conditions that will exist at the other end of their trajectory. Countries that are pleased with their current circumstances will need to put in place the policies that will preserve their good fortune, even as their demographic profiles change. Countries that wish to improve their lot will have to work even harder to formulate the right policies. They must ensure, beginning in the nascent stage and moving up to the advanced developed phase, that public infrastructure keeps up with demand; that education is high-quality and accessible; that immigrants and women are integrated into the workforce; and that social security and healthcare systems are transformed so that large aging populations do not overwhelm the workforce and stifle the economy. In essence, they must make sure that whatever their position on the arc of growth, their demographic circumstances are a source of power and wealth rather than a drag on the economy.

Business leaders, meanwhile, must respond to aging populations by seizing opportunities and confining risks. They must cope with changing preferences as consumers age; they must go abroad to develop new markets, targeting countries that are moving most rapidly through the arc of growth; and they must adjust to changing workforce patterns and shifting supply chains. Most of all, they must look beyond their immediate goals and consider how demographics are affecting their industry as a whole.

These challenges are daunting and inspiring at the same time. Through the lens of proactive demographics, both governments and companies can glimpse the future and influence its outcome.

Author Profiles:

  • Richard Shediac is a senior partner with Booz & Company based in Abu Dhabi, where he leads the firm’s Middle East work for public-sector and healthcare clients. He has led and participated in strategy, operations improvement, and organization projects in the Middle East, Europe, and Asia.
  • Chadi N. Moujaes is a partner with Booz & Company based in Abu Dhabi. He focuses on public policy and socioeconomic development, with an emphasis on education reform.
  • Mazen Ramsay Najjar is a principal with Booz & Company based in Beirut, specializing in financial economics. He focuses on public policy, socioeconomic development, and macroeconomic and financial stability management.
  • Also contributing to this article were Booz & Company principals Eva Kunigk and Rasheed Eltayeb and s+b contributing editor Melissa Master Cavanaugh.
 
 
 
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Resources

  1. DeAnne Aguirre, Laird Post, and Sylvia Ann Hewlett, “The Talent Innovation Imperative,” s+b, Autumn 2009: In light of today’s changing workforce, rethink the way you manage people.
  2. David E. Bloom and David Canning, “Booms, Busts, and Echoes,” Finance and Development, vol. 43, no. 3 (September 2006): Analysis of current population trends, featuring the demographic dividend concept.
  3. Alonso Martinez and Ronald Haddock, “The Flatbread Factor, ” s+b, Spring 2007: To understand the life cycle of an emerging market, learn to decode its consumer products.
  4. C.K. Prahalad and Hrishi Bhattacharyya, “How to Be a Truly Global Company,” s+b, Autumn 2011: Three strategies — customization, competencies, and arbitrage — for a business model relevant to emerging economies.
  5. Edward Tse, The China Strategy: Harnessing the Power of the World’s Fastest-Growing Economy (Basic Books, 2010): A guide to the country’s changing markets, increased competition, shifting government priorities, and relationship with the outside world.
  6. Edward Tse, Bill Russo, and Ronald Haddock, “Competing for the Global Middle Class,” s+b, Autumn 2011: How three types of companies are jockeying to capture the loyalty of billions of new consumers.
  7. For more on this topic, see the s+b website at: www.strategy-business.com/global_perspective.
 
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